Taiwan Contract Manufacturer Denies Sale To Intel

Intel is said to be interested in buying a stake of Cheng Uei Precision to diversify its supplier relationships.

One of Taiwan's biggest components suppliers, Cheng Uei Precision, is denying reports that Intel will invest in it to help diversify the CPU maker's supply of PC motherboard socket connectors.

The story is gaining attention because it would pit two of Taiwan's most well-known brothers against each other -- Terry Guo, founder of electronics contract manufacturer Hon Hai, and Wei Guo, chief executive of Cheng Uei Precision.

Intel said it would not speculate on market rumours. Meanwhile, Cheng Uei noted that it doesn't make socket connectors and has no interest in getting into that market.

However, industry observers noted that the bigger issue developing for companies like Intel and its peers in the industry is whether or not Hon Hai is getting too big. It currently dominates the electronics manufacturing service market, churning out gadgets for the likes of Apple, Hewlett-Packard, Dell, and Sony.

Hon Hai is the largest supplier of socket connectors for motherboards, which allow the CPU to snap into and sit snugly on the board. And it makes everything from LCD TVs and PCs to Playstations and iPhones.

"These things go in cycles. Sometimes companies like Intel or Dell think one supplier is getting too dominant so they try to nurture another one so they can play them off each other and keep prices lower," said He Cheng, an independent analyst following the PC sector.

Taiwanese electronics makers have repeatedly complained in the past that the industry's biggest branded players only leave them "scraps" for profit. "I think I could make more margin on a sneaker," quipped Quanta Computer founder Barry Lam at a recent conference. Quanta is the world's largest supplier of laptops to brands like Dell and HP.

The cut-throat practice forces many Taiwan companies to tightly control their costs, which is getting harder to do, even in China. Hon Hai recently came under criticism for being too tight-fisted with salaries at its Chinese plants, where roughly 800,000 people work.

A spate of suicides that were allegedly linked to tough working conditions for low pay spurred the company to accelerate its plans for wage increases earlier this month.

Just because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.